INDEPENDENTS REPORT: The almighty dollar

They say turnabout is fair play. If there's any retail format likely to be keeping the supercenter operators awake at night, it's the fastest-growing retail channel in the country, dollar stores.

Of course, though, it's not only big discounters that need to be concerned about these competitors. Chains such as Dollar General, Family Dollar, and Dollar Tree, for example, are forcing leading independents to fight for their fair share of the $38 billion dollar store market, says Steve Dillard, v.p. of corporate sales for Kansas City, Kan.-based Associated Wholesale Grocers (AWG), which services over 1,400 supermarkets in 20 states.

Attracting 32 percent of U.S. consumers on a monthly basis, dollar stores are experiencing astonishing growth across the nation, while at the same time the number of supermarkets operating nationally continues to decline.

"Dollar stores have added over 7,000 locations during the past five years, bringing the total number of stores operating in the United States to over 20,000," says Dillard. "They're doing a phenomenal job meeting the needs of consumers who are consistently searching for value." Dillard ought to know, since his entire career has been devoted to the retail and wholesale food business.

Why such emphasis on value? "Today nearly half of the American population earns less than the median income, which according to census reports, is slightly over $42,000 per year," explains Dillard. "Fifty-six percent of those who shop regularly at dollar stores generate annual household incomes of less than $25,000. That helps to explain why dollar store sales overall increased by over 13 percent last year alone."

The good news for independents is that they can beat, or at least compete with, dollar stores by joining them. Determined to help its retail members hold their own against the growing dollar channel, three years ago AWG enlisted its v.p. of merchandising, Jay Goble, and his team to develop a turnkey dollar store program that's been helping grocers take their own bite out of the dollar store market ever since.

"Our goal overall was to enable retailers to enhance their price image without sacrificing gross margin," says Dillard. "Over 460 retailers currently participate in our program, and all have implemented dedicated dollar sections within their stores."

"Turnkey" is the right word for the program. "We provide everything our retailers need to be successful in their dollar store ventures: merchandising support, signage, complete planograms, and access to over 1,000 items from our warehouse, 40 percent of which are food products."

Proof of success

Is it working? "Those who've taken advantage of the program are experiencing incremental sales increases without cannibalizing private labels and national brands," confirms Dillard. "The proof of the program's success is that every week we're getting additional requests from retailers to install dollar sets. Once we're provided with the space, we can have a department up and running within a week or two."

The AWG-supplied dollar departments, most of which encompass 400 to 500 square feet, or two 60-foot grocery aisles, offer 300-plus food items that complement a store's private label brands. Generating on average a 25 percent gross margin, the food category includes the following:

--Cereal products such as corn flakes, frosted flakes, fruit twirls, and toaster pastries

--Baking products, including evaporated and condensed milk, lemon juice, muffin and cookie mixes, and baking powder

--Dollar dinners such as spaghetti and elbow macaroni, macaroni and cheese, skillet dinners, and mashed, au gratin, and scalloped boxed potatoes

--Dollar glass, including salad dressings, grape jelly, ketchup and mustard, and hot sauce

--Cookies and snacks such as fruit rolls, potato and corn chips, chocolate chip and oatmeal cookies, fruit bites, and more

"Dollar department consumables including dry grocery, freezer and cooler items, health and beauty, and paper products generally produce 55 percent to 60 percent of the total department's sales, and the nonfoods such as household items, dish liquids, carpet cleaners, air fresheners, pine cleaners, auto detergents, furniture polishes, insecticide sprays, etc. represent the balance of department sales," notes Dillard.

He continues: "Of course, kitchen gadgets, toys, baby care products, aerosols, and pet products generate big sales. Such items include flex straws, chip clips, toy water guns, bag balloons, baby wipes, feminine hygiene products, laundry care, stoneware mugs, and more."

A successful dollar program depends on many factors, foremost among them a relationship with a strong and reliable supplier, which can ensure that product labels are up to date and emulate those of the national brands. "Also, to achieve greater customer interest, we fold into our merchandising plans pallet module promotions, plus we continuously add new items," says Dillard.

He adds: "Most importantly, the dollar department must have its own dedicated section within the store. You don't want to display the dollar items in-line next to the national brands. Doing this will cause customers to trade down on their purchases, and it gives an impression that everything else on the shelf is priced too high."

Dillard is certainly bullish on the future of dollar store sections. "The offering helps to portray a lower price image, introduces customers to new products that sell, attracts those customers who may go across the street to the dollar store to buy items that the supermarket doesn't offer, and adds excitement and extra sales to the store.

"Dollar sections are definitely an excellent way to reduce the impact of a supercenter's low-price image," he notes. And that's getting plenty for your dollar.
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